It is not about centralised finance having nothing to do with crypto. It is about the same loathed 'bail-out' behavior/mechanism creeping into crypto. See Bankman-Fried et al antics.
The journos are just observing an eerie parallel to what happened during subprime/credit crisis.
Again quoting Levine:
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TerraUSD was the “debt” of the Terra blockchain, while the Luna token was its “equity.” Intuitively, when it blew up, you would expect the holders of the debt to get whatever’s left (equity in the surviving company, any cash lying around, etc.), while the holders of the equity would get nothing. But in the case of Terra, things didn’t work that way: Terra launched a new blockchain, with some residual value, and gave most of it to Luna holders rather than TerraUSD holders. The thing that was supposed to be a senior claim with a fixed value turned out to be mostly worthless; the thing that was a risky bet on the growth of the network kept its value better (still not well).
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FT echoed the same sentiment re. leverage:
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Investors could juice their returns by taking out multiple loans against the same collateral, a process called “recursive borrowing”. This freedom to recycle capital with little restraint led investors to stack up more and more yields in different DeFi projects, earning multiple interest rates at once.
“As with the subprime crisis, it’s something really appealing in terms of yield and it looks like and is packaged like a risk-free financial product to ordinary people,” said Lennix Lai, director of financial markets at crypto exchange OKX.
The financial gymnastics left huge towers of borrowing and theoretical value teetering on top of the same underlying assets. This kept going while crypto prices sailed higher. But then inflation, aggressive interest rate rises and geopolitical shockwaves from the war in Ukraine washed across financial markets.
“It all worked during the bull run where the prices of all the assets went up only. When the prices started going down, a lot of people wanted to take their assets out,” said Marcin Miłosierny, head of market research at crypto hedge fund ARK36.
As token values plummeted, the lenders called in their loans. The process has led to the removal of more than 60 per cent, or $124bn, of the total value locked on the ethereum blockchain since mid-May in a “Great Deleveraging”, according to research firm Glassnode.
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https://www.ft.com/content/032b95dc-7feb-4a2d-8eac-c71235643c07
